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Tax Credits Imply that There Must Be Taxes – G.C.
GC: Since businesses only collect taxes and pass on the cost of doing business to their customers, I believe businesses should not be taxed at all. Thus, when you propose tying an education funding source to a business tax credit, I can't throw my wholehearted enthusiasm behind the idea since every proposal to reduce business taxes in the future would be met with resistance from those who benefit from the tax credits. I think that's a bad set-up to establish — where poor families would be calling for maintaining taxes on business so they can benefit from any potential tax credits.
This is a curious criticism. Vouchers are going to have to be paid for too, and they’re going to be paid for through taxes. Taxes on anybody and everybody. Contrary to vouchers, personal use tax credits actually lower the total tax burden on American families, and donation tax credits give taxpayers much more say in how their money is spent than any voucher system. For these and other reasons discussed in the paper, I see tax credits as categorically superior to vouchers from the tax reduction/tax freedom/social engineering angle.
Tax Credits Are Social Engineering – G.C.
GC: Also, I recall Milton Friedman's response a number of years ago when I asked him about tax credits:
Clowes: What about the issue of tuition tax credits versus vouchers?
Friedman: I have some doubts about tuition tax credits for the following reasons. I believe--most people believe--that taxation should be a method of raising funds to finance government spending. It should not be a tool for social engineering. Now how can I, who object to using taxes for social engineering for all sorts of purposes, argue that you ought to use it for this particular piece of social engineering because I'm in favor of it. So, on that ground, I'm very hesitant about tuition tax credits.
I think his comment regarding "social engineering" is still valid and I am puzzled that groups like Cato and Mackinac, who generally oppose social engineering, see nothing wrong with promoting tax credits for educational purposes.
I have an entire section on this subject in Forging Consensus (page 67), in which I argue that the personal and social behavior distortion of UETCs is less than that of vouchers, and much less than that of traditional public schools. One of the citations in that section is to a personal e-mail exchange with Dr. Friedman, who agreed with me that personal use tax credits are less distorting than vouchers, but disagreed with me in that he believes donation credits are not any less distorting (however, he did not say that he found them any more distorting, either).
Tax Credits Are Social Engineering — 2 – G.C.
GC: [Regarding the section on social engineering through the tax code:] The argument that we need more social engineering to counter the social engineering in the present system isn't very convincing. It's still social engineering, whichever way you cut it.
No, it is not still social engineering. Under public schooling, everyone is taxed to pay for a single government system that most people are forced to attend. Under vouchers, everyone is taxed to pay for a single system that funds all voucher schools irrespective of the individual taxpayer’s personal convictions. Only tax credits give non-parent taxpayers any freedom at all in choosing how to direct their education funds. Tax credits thus represent less social engineering of taxpayer behavior than either vouchers or public schools, not more.
Vouchers Do not Distort Behavior – G.C.
GC: The options you present as available for vouchers seem artificially limited so as to favor your argument for tax credits. For example, there is no reason why "vouchers must be spent on tuition alone." Laws are code just like a computer program. If we want a different result, we write different code. If voucher funds were placed in an education account that the parent could use them to spend on different aspects of their child's education, then this would not "distort" behavior.
First, non-parent taxpayers would still have their behavior distorted more under vouchers, which give them no choice, than under donation tax credits, which give them some. Second, I have already explained why I think Heartland Plan voucher surplus accounts are unacceptably prone to abuse. Third, I have argued that the harmful regulatory burden that would accompany universal voucher programs would be heavier, in the long term, than that accompanying UETCs.
